Voluntary Contributions

[Guest Ray Corneau]

One of my clients is looking to amend their document to allow for after-tax contributions. They have a 401(k) Plan. They are curious to what the pros and cons are. I would appreciate it if I could get the boards opinion on this matter. Thanks!

[Archimage]

With EGTRRA I can't understand why someone would want voluntary contributions. In my opinion, putting money in pre-tax is a better investment strategy since the amount that you would have paid in taxes is growing (hopefully) along with your contribution.

Also, the processing for you, the TPA, could be greatly increased depending on how you structure the plan.

If it is widely used it also possible that you might have some ACP problems.

[Brian Gallagher]

bump

[david rigby]

ACP problems are likely, whether it is widely used or not.

But ask why the sponsor is considering this course of action. Perhaps there is another way to address the issue.

[Tom Poje]

Ray-

no one came out and said why ACP problems arise, but:

1.usually only HCEs put away after-tax dollars. these must be included in the test

2. since everyone has the ability to put away after tax $, everyone must be included in the ACP test.

(e.g. if your plan has a last day requirement for the match, anyone who terminates is excluded from the ACP test)

you could end up with a bunch more zeroes on the ACP test with after-tax contributions.

[Brian Gallagher]

besides the obvious acp issues, would there be any other cons?

ray's record keeping system handles after tax very well--gross vs net contribs, proper tax forms, etc.